Home Energy assets How Malaysia Ended Up Owing $15 Billion to the Sultan’s Heirs

How Malaysia Ended Up Owing $15 Billion to the Sultan’s Heirs

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  • By Rozanna Latiff and A. Ananthalakshmi/Reuters, KUALA LUMPUR

Malaysia is scrambling to protect its assets as descendants of the last sultan in the Philippines’ remote region of Sulu seek to enforce a $15 billion arbitration award in a dispute over a colonial-era land deal.

In 1878, two European settlers signed an agreement with the sultan for the use of his territory in present-day Malaysia – an agreement that independent Malaysia honored until 2013, paying the monarch’s descendants about $1,000 a year .

Now, 144 years on from the original deal, Malaysia is set to receive the second-largest arbitration award on record for stopping payments after a bloody incursion by supporters of Sultan Mohammed Jamalul Alam’s heirs during of which more than 50 people were killed.

Photo: Reuters

“This is a fascinating and unusual case,” said solicitor Paul Cohen, co-lead counsel to the Sultan’s heirs at UK law firm 4-5 Gray’s Inn Square.

For years, Malaysia has largely denied the claims, but last month two Luxembourg subsidiaries of state energy company Petronas received a notice of seizure to enforce the award the heirs won in February.

The arbitration decision in France follows an eight-year lawsuit by the heirs and $20 million in funds raised for them from unidentified third-party investors, according to interviews with key figures in the case. and legal documents seen by Reuters.

Malaysia did not participate in or recognize the arbitration – allowing heirs to present their case without rebuttal – despite warnings that it would be dangerous to ignore the process.

The plaintiffs, some of them retirees, are Filipinos leading middle-class lives, a far cry from their royal ancestors in the Sultanate of Sulu who once sprawled over rainforest-covered islands in the southern Philippines and parts of Borneo. .

The heirs say the 19th century lease was a commercial lease, which is why they chose arbitration. They also demanded compensation for the vast reserves of energy that have since been discovered in the territory they ceded in the Malaysian state of Sabah in Borneo.

Malaysia said the sultanate ceded its sovereignty and the arbitration was illegitimate.

“Arbitration is a sophisticated fiction, disguised as a legal process,” said Uria Menendez, a Spanish law firm representing Malaysia.

Malaysia was granted a stay in France pending an appeal – a process that could take years – but the award remains enforceable worldwide under a UN convention on arbitration.

Malaysia honored the colonial-era deal until 2013, when supporters of the late Jamalul Kiram III, who claimed to be the rightful Sultan of Sulu, attempted to reclaim Sabah.

Clashes erupted when around 200 supporters arrived in boats from the Philippines and lasted nearly a month.

Kiram, who claimed to be the “poorest sultan in the world”, was not one of the court-recognized heirs receiving payments from Malaysia.

The eight arbitration claimants – including Kiram’s daughter and cousins ​​– who received the annual payment condemned the attack.

Until the intrusion, the Malaysian Embassy in Manila annually issued a check to claimants for “surrender money”, according to checks and correspondence from the embassy to heirs and shared with Reuters by the lawyers. heirs.

Then-Malaysian Prime Minister Najib Razak said he stopped the payments due to public anger over the incursion, publicly acknowledging the reason for the first time.

“I felt it was my duty and responsibility to protect the sovereignty of Sabah and the people of Sabah,” he said, adding that he had no plans for judicial retaliation.

The applicants, through their attorneys, declined to be interviewed.

Cohen, the attorney for the heirs, first heard about their claims from an oil and gas expert he cross-examined in 2014 in an unrelated case.

Knowing they didn’t have the financial means, in 2016 Cohen turned to Therium, a British company that funded legal actions by raising funds from institutional investors, including a sovereign wealth fund.

Therium conducted nine funding rounds for the deal, during which third-party investors repeatedly assessed its merits, said Elisabeth Mason, senior plaintiff counsel at 4-5 Gray’s Inn Square.

The case cost more than $20 million, including lawyers and researchers in eight jurisdictions, she said.

“Investors do not invest lightly in such matters,” she said.

Therium said it would continue to fund efforts to enforce the sentence. He declined to provide details.

The heirs gave notice of their intention to start arbitration in 2017 in Spain and initially sought compensation of $32.2 billion, according to the statement of award.

Malaysia’s first response came in 2019 when then-Attorney General Tommy Thomas offered to resume annual payments and pay 48,000 ringgit (US$10,772 at the current exchange rate) in arrears and debt. interest if the arbitration is discontinued.

Thomas said the demands were “absurd and ridiculous”, but made the offer after colleagues informed him that it was “perilous” to ignore arbitration because Malaysia’s foreign assets could be in danger, he wrote in a memoir last year.

The heirs rejected Thomas’s offer and the arbitration proceeded without Malaysia’s participation.

Malaysia successfully challenged Gonzalo Stampa’s appointment as sole arbitrator in a Spanish court last year.

Stampa argued in its statement of award that the courts lacked jurisdiction to arbitrate and referred the case to France for award – actions which Malaysia said were illegal.

Stampa is the subject of criminal proceedings in Spain following a complaint filed by Malaysia. He declined to comment.

By snubbing arbitration, Malaysia is merely arguing procedural validity rather than arguing against heirs’ claims, said N. Jansen Calamita, head of investment law and policy at the National University of Singapore. .

“It was a risky strategy and ultimately I don’t think it served them well,” he said.

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